NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects

Christopher D. Carroll, Jiri Slacalek, Martin Sommer

NBER Working Paper No. 26131
Issued in August 2019
NBER Program(s):Economic Fluctuations and Growth Program, The Monetary Economics Program

We show that an estimated tractable ‘buffer stock saving’ model can match the 30-year decline in the U.S. saving rate leading up to 2007, the sharp increase during the Great Recession, and much of the intervening business cycle variation. In the model, saving depends on the gap between ‘target’ and actual wealth, with the target determined by measured credit availability and measured unemployment expectations. Following financial deregulation starting in the late 1970s, expanding credit supply explains the trend decline in saving, while fluctuations in wealth and consumer-survey-measured unemployment expectations capture much of the business-cycle variation, including the sharp rise during the Great Recession.

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Document Object Identifier (DOI): 10.3386/w26131

 
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